INVENTIVE STEP

Supreme Court to Review Burden of Proof in Declaratory Judgment Actions

May 21, 2013

Yesterday, the Supreme Court agreed to hear the appeal of the declaratory judgment plaintiff in Medtronic Inc. v. Boston Scientific Corp. The question presented in the case is as follows:

In MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 137 (2007), this Court ruled that a patent licensee that believes that its products do not infringe the patent and accordingly are not subject to royalty payments is “not required … to break or terminate its … license agreement before seeking a declaratory judgment in federal court that the underlying patent is … not infringed.”

The question presented is whether, in such a declaratory judgment action brought by a licensee under MedImmune, the licensee has the burden to prove that its products do not infringe the patent, or whether (as is the case in all other patent litigation, including other declaratory judgment actions), the patentee must prove infringement.

Federal Circuit Decision

Medtronic licensed patented technology related to cardiac resynchronization therapy (CST) from Mirowski Family Ventures (MFV). Nearly from the start of the relationship, the parties disagreed as to which products were covered by the patents and whether the patents were valid. In 2003, Medtronic challenged the validity of a licensed patent while paying royalties into an escrow account. The parties ultimately settled the case. The settlement agreement indicated that MFV would inform Medtronic as to which products were covered by the patents. If Medtronic disagreed, it could retain the license while bringing a declaratory judgment action to have the court decide the issue.

In late 2007, Medtronic filed just such a declaratory judgment action of non-infringement and invalidity of the patents. Because it continued in the license agreement, MFV could not counterclaim for infringement. The parties disputed whether the burden to prove infringement rested on MFV, as is typically the case for the patent owner, or if, given the stature of the case, Medtronic bore the burden to prove non-infringement. The district court sided with Medtronic and found the MFV did not meet its burden of proving infringement of the Medtronic products.

On appeal, the Federal Circuit recognized that the case is not the typical patent infringement situation where the patent owner files the initial complaint, nor is it the typical declaratory judgment case where the patent owner files the compulsory infringement counterclaim. In those situations, the patent owner quite clearly bears the burden of proving infringement.

Now that the Supreme Court has indicated that counterclaims can be filed in the absence of ceasing royalty payments, patent owners cannot always file infringement counterclaims in the face of a declaratory judgment action. Does the patent owner still bear the burden of proving infringement or has it shifted to the declaratory judgment plaintiff?

The Federal Circuit reversed the district court and allocated the burden of proof to the declaratory judgment plaintiff. The court clearly struggled with how to handle the burden in light of MedImmune. The court ultimately reasoned that MedImmune would become not simply a shield to keep licensees from large damage awards from non-payment of the license, but also a sword to haul the patent owner into court where the patent owner must prove infringement. It is the licensee and not the patent owner who seeks relief from the court and a change in the status quo. If neither party presented evidence, the court should not upset the status quo of the license agreement. Thus, fairness requires them to bear the burden of proof.

The Supreme Court has now agreed to resolve this dilemma of its own making during its October 2013 term.

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Chen Closer to Federal Circuit Confirmation

May 16, 2013

Last month, PTO Solicitor Raymond Chen had his hearing before the Senate Judiciary Committee. Today, the Committee unanimously reported the nomination favorably to the full Senate. Hopefully, the full Senate will vote on his nomination in the coming weeks (or months or years).

The Federal Circuit currently includes 10 active judges, although the court has 12 judicial seats. Todd Hughes was nominated at the same time as Raymond Chen. He has not yet received a hearing before the Senate Judiciary Committee.

Chen’s nomination seems to be proceeding with incredible speed compared to recent nominations.

HT: Hal Wegner

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Supreme Court Affirms Federal Circuit in Seed Patent Exhaustion Case

May 13, 2013

In a rare affirmance of the Federal Circuit, the Supreme Court found no exhaustion in the seed patent case. Bowman v. Monsanto Co.

Justice Kagan, writing for a unanimous Court, held that the doctrine of patent exhaustion only restricts a patent owner’s rights to a particular article sold. It does not limit the patent owner’s right to keep others from making additional copies of the patented invention.

Exhaustion protected Bowman as to his ability to use the patented seeds as he saw fit. It does not, however, protect him from charges of infringement should he decide to “make” new seeds. This is what the Court said he did. He planted the original seeds and harvested new ones from the resulting plants. The act of making the new seeds was an act of infringement not protected by patent exhaustion.

More details are available in my preview post for the Supreme Court’s current term.

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Federal Circuit En Banc on Patentable Subject Matter

May 10, 2013

A Federal Circuit panel had reversed a district court opinion that related to patent eligibility of computer-related claims. The details of the patent are related in my earlier post, but the salient issue is that the patent included method, system, and computer-readable media claims. The panel divided over the issue with Judges Linn and O’Malley reversing the district, while Judge Prost dissented. The court agreed to hear the case en banc.

Today, the 10 member en banc court overruled the panel decision and affirmed the district court. If you were looking for precedent, however, you will be disappointed. Here is the entire per curiam opinion:

Upon consideration en banc, a majority of the court affirms the district court’s holding that the asserted method and computer-readable media claims are not directed to eligible subject matter under 35 U.S.C. § 101.

An equally divided court affirms the district court’s holding that the asserted system claims are not directed to eligible subject matter under that statute.

In other words, a majority of the court holds that the method and computer-readable media claims are not patent eligible, but they can’t agree on the reasoning. The court divided 5-5, however, on the patent eligibility of the system claims. In such a case, an appellate court affirms the lower court; the tie goes to the runner so to speak.

After that brief opinion, however, an additional 120+ pages are allocated to concurring and dissenting opinions that apparently could not garner a majority.

Judges Lourie, Dyk, Prost, Reyna, and Wallach

Judges Lourie, Dyk, Prost, Reyna, and Wallach filed a concurring opinion where they laid out the analysis they would use for the claims at issue.

First, it must be determined whether the claims fit within one of the four statutory classes: process, machine, manufacture, composition of matter. Next, does the claim pose the risk of preemption of an abstract idea? The claim must include an inventive concept, a genuine human contribution.

In applying this analysis to the claims-at-issue, this group of 5 judges would hold that none of the claims are patent eligible.

Chief Judge Rader and Judges Linn, Moore, and O’Malley

Next, Chief Judge Rader and Judges Linn, Moore, and O’Malley filed an opinion concurring-in-part and dissenting-in-part. Chief Judge Rader and Judge Moore agree with the majority that the method and computer-readable media claims are not patent eligbile, while Judges Linn and O’Malley would find all of the claims to be patent eligible.

This opinion notes that the exceptions to patent eligibility are “laws of nature, natural phenomena, and abstract ideas.” In crafting these exceptions, the Supreme Court was concerned with the “monopolization of the basic tools of scientific and technological work” and impede innovation more than promote it.

The opinion notes that claims must be “meaningfully limited.” For computer-related claims, this means that the otherwise abstract idea must be performed in a “specific way” on the computer or be performed on a “specific computer.” The computer must perform a meaningful role in the performance of the invention. The court must be careful not to consider novelty, obviousness, or section 112 issues when determining patent eligibility.

Judge Moore filed an opinion dissenting-in-part that was joined by Chief Judge Rader and Judges Linn and O’Malley.

Judge Moore is very concerned that the exception to patent eligible subject matter is getting too large and that a very large number of currently valid patents may be implicated. She describes the court as “irretrievably fractured” over the issue of patent eligibility. The Supreme Court only seems to review cases where it is going to rule the claims to be patent ineligible. She seems to urge them to review this case and hold otherwise.

She is extremely critical of Judge Lourie’s opinion. She indicates that he strips away all known features from the claims in his search for an “inventive concept.” This is, of course, continuing the confusion between § 101 and §§ 102 and 103 of the Patent Act.

Judge Newman

Judge Newman filed an opinion concurring-in-part and dissenting-in-part. Judge Newman is concerned over the added uncertainty to patentees now that patent eligibility seems to be a completely separate litigation issue. She decries the division over the issue on the court and that it will not provide any guidance to patent owners. She would hold all of the claims in this case to be patent eligible.

Judges Linn and O’Malley

Judges Linn and O’Malley filed a dissenting opinion. They note that no claim construction analysis was conducted in this case and it comes to the court on a grant of summary judgment of patent ineligibility. The defendant in the case has agreed to a much narrower construction of the claims than they have been given by the court. Based on the sparse record, they would hold all of the claims to be patent eligible.

Finally, Chief Judge Rader provided “additional reflections” where he reviews other patent eligibility cases with which he has been involved. He leaves us with a mantra to ponder:

When all else fails, consult the statute!

Posted in Court Decisions, Federal Circuit | 1 Comment »

Business Method Review Bill Introduced

May 8, 2013

Sen. Charles Schumer (D-NY) has introduced a bill in the Senate that would expand the AIA’s temporary review of business method patents in the financial services industry. The bill would simply delete the sunset provision in the AIA and replace the “financial product or service” language in the AIA with “an enterprise, product, or service.” The intent, presumably, is to expand the current PTO review to include business method patents in any industry, not just the financial services industry.

The bill is designated as S. 866 and has been referred to the Senate Judiciary Committee.

While the bill does not use the term “patent trolls” at all, Sen. Schumer recently issued a press release where he indicated that he intended to introduce legislation to crack down on patent trolls. These entities are costing “legitimate companies” billions of dollars per year. He asserts that the expanded potential to have patents reviewed by administrative experts at the PTO will save legitimate companies on litigation costs.

Some might suggest that this legislation can have a very different effect from that intended by Sen. Schumer. If the patent makes it through the PTO review a second time (and they usually do for reexamination), the patent may actually be viewed more strongly by juries. The patent has not only survived initial review by the PTO, but it has also withstood the additional scrutiny of the new review procedure.

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Penny Pritzker Nominated as Commerce Secretary; PTO Director Next?

May 7, 2013

President Obama has nominated Penny Pritzker to replace John Bryson who resigned as Secretary of Commerce last June. Pritzker is a billionaire business executive, entrepreneur, civic leader, and philanthropist.

Pritzker has served in numerous roles in the Obama Administration, including as a member of the President’s Council on Jobs and Competitiveness and on the President’s Economic Recovery Advisory Board. More importantly, she was involved extensively in each of the president’s campaigns serving as finance chair in 2008 and as co-chair of Obama for America in 2012.

This nomination may not easily pass the Senate. Pritzker was also considered for the Commerce position in 2008, but withdrew her name amid controversies surrounding her and her families finances.

It is likely that President Obama will not nominate a new PTO director until the Commerce Secretary position is solidified. David Kappos left the PTO in January. Teresa Stanek Rea has been Acting Director since that time.

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Design Patents

April 30, 2013

Utility patents get all of the publicity in when discussing innovation. This could be changing with Apple’s $1.05 billion verdict against Samsung, which was based in large part on infringement of Apple’s design patents.

Another option that an inventor may want to consider is a design patent. Utility patents cover structural and functional aspects of an invention, while design patents cover the asthetic features.

Design patents differ from utility patents in a number of basic ways. A design patent is granted to cover the ornamental design of an object that has practical utility. For example, a design patent may be obtained for a new shape of a beverage container, the particular shape and features of the tread of a shoe, computer icons, and other items that have practical utility.

A design patent is not permitted for something that exists for purely aesthetic reasons, such as a work of art. A painting, sculpture, or other work of fine art would be protectable by copyright and possibly other intellectual property rights, but would not be eligible for design patent protection.

An invention may be entitled to both a utility patent and a design patent since a utility patent protects the structure of an article and the way it is used and works; a design patent protects the way an article looks. If the design–the way the article looks–is dictated primarily by the article’s function, it would not properly be the subject of a design patent. An example may be the shape of a gear that is designed primarily to fit with other gears and not for aesthetic purposes.

The requirements for obtaining a design patent are similar to that for utility patents. The design must be novel and non-obvious; the examiner will perform a search of the prior art to be certain that the design meets these requirements. Furthermore, the drawings must clearly show the features sought to be protected by patent. The drawings will typically be more detailed than in a utility application as they will often show more views of the invention. The drawings contitute the claims of the design patent. Because they don’t require a detailed specification like a utility patent, design patents are also less costly to prepare and file.

Design patent protection lasts for 14 years (shortly to increase to 15 years) from the date the patent issues compared to 20 years from the earliest filing date for a utility patent. No maintenance fees are required for design patents.

Another advantage of design patents over utility patents is that they seem to be much easier to obtain. In recent years, design patents have had an allowance rate of about 90% over the last few years, compared to utility patent allowance rates of under 50%. Over 80% of design patent applications are allowed without rejection; only 1.2% are rejected based on prior art with a larger number rejected on formality grounds.

In an era of increasing backlog and pendency of utility applications, more than half of design patents are pending for less than a year, with the average pendency being about 16 months.

For an invention where design and utility patent protection are both appropriate, I would not skip the utility patent. An inventor should at least file a utility application for its broader scope of coverage and should also consider a design patent. A design patent would provide some protection while waiting for a utility patent to issue. They are also cheap since they don’t involve a great deal of preparation and prosecution. Inventors should always consider whether their inventions are eligible for design and utility patent protection.

Posted in Patent Strategies | 1 Comment »

PTO Budget Problems

April 22, 2013

As I alluded to last week, the PTO is again facing a budget crisis. Acting PTO Director Teresa Stanek Rea told employees last week that “immediate and significant” budget cuts were coming due to lower-than-expected fee revenue and the congressionally mandated budget cuts from the sequester.

Hiring, travel, training, and information technology modernization will be the focus of initial cuts, but it seems likely that significant cuts will be required across the board. The agency will attempt to minimize impact on users, but that can only go so far.

Director Rea noted that fee revenue is “substantially below” PTO expectations set for in its FY2013 budget. Sequestration cuts have been mandated at about 5% of PTO revenue or $148 million. Since the PTO is a fee-based agency that is self-funded that shouldn’t be a problem, right? They simply will take in less revenue and therefore have less to spend.

Unfortunately, it appears the agency is getting hit by a double whammy. Not only is revenue down, but Congress is again instituting fee diversion. The 5% cut will apparently come from fees the PTO has collected. These will be shunted to other agencies within the Federal government.

I thought the America Invents Act was supposed to fix all of the PTO’s budget problems and issues of the past. The PTO was granted rule-making authority to set its own fees so as not to be at the whim of Congress. And Congress PROMISED this time that it would no longer divert PTO funds. Of course, this promise came at the same time that the prohibition against the practice was stripped from the bill.

What did we think would happen? Did we really think Congress would keep its word on fee diversion? Seriously?

Patently-O and IPWatchdog have written about this issue as well.

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PTO Numbers – March 2013

April 19, 2013

We have now reached the half-way point of FY2013. It’s time to review PTO numbers again.

The following is a comparison of the PTO’s numbers from March 2013 with the end of FY2012 (at my last numbers update). Time to refer again to the PTO’s Data Visualization Center to see how things are going.

First Action Pendency – 19.2 Months

At the end of FY2012, first action pendency was 21.9 months. That number is a significant improvement. That’s a 12% drop in the first six months of the year.

“Traditional” Total Pendency – 31.1 Months

Traditional pendency is down from 32.4 months in September. The 4% reduction continues to demonstrate progress in this area.

Application Pendency with RCEs – 38 Months

This represents a 3.5% reduction since September and a drop of 1.4 months. This is progress, but the increasing number of RCE filings (and appeals) makes this number look better than it actually is.

Applications Awaiting First Office Action – 607,482

This number is virtually unchanged during FY2013, down from 608,283. The PTO had this number down to 593,339 at the end of February. The huge spike in new filings to beat the first-to-file transition, however, brought the number back up.

Patent Application Allowance Rate – 51.1%, 68.8%

The first number counts RCE filings as abandonments, while the second number does not, but counts them as continuing prosecution. These numbers are only slightly changed from 51.4% and 68.2%, respectively, in September. The nearly 17% difference between the two numbers is, however, troubling. Especially considering the next number.

RCE Backlog – 111,274

At the end of FY2012, the PTO reported 95,200 applications with RCE filings that awaited action; at the end of FY2011 that number had crept up to 63,487. That represents a 17% increase during FY2013 and a 75% increase over the last two years. Not good . . . Rather than apportioning blame, perhaps trying to find a solution is the best answer.

Number of Patent Examiners – 7,842

This number is unchanged from 7,837 in September. The PTO is facing another budget crisis due to sequestration. This number will probably fall.

Pendency from Application Filing to Board Decision - 87.9 Months

The crisis at the Board continues to get worse and shows no signs of abating. This number continues to climb–from 85.9 months in September. New technologies become obsolete prior to getting a patent or decision by the Board. The PTO hired a number of additional patent judges and attorneys to deal with this issue, but the sharp increase in the number of appeals filed has made tackling this an impossibility. The Board now has significantly greater responsibilities with the beginning of the new post-grant review proceedings.

At the end of February, the Board had 26,459 pending appeals from ex parte application prosecution, a number virtually unchanged during FY2013. 4,695 new appeals were filed since September (a pace for 11,268), which is on pace for a 9.4% reduction from FY2012. Meanwhile, the Board disposed of 4,720 cases during FY2013 (a pace for 11,328), an increase of 14% from FY2012!

In other types of cases, 152 inter partes review cases have been filed, 14 trials instituted and 3 concluded. 15 transitional business method cases were filed with 5 trials instituted. 10 new interferences were declared, with 26 concluded, leaving the Board with 37 still to be decided. 46 new ex parte reexamination cases were filed, with 41 being disposed. 27 such cases remain pending. 82 inter partes reexaminations have been filed. The Board has decided 67, leaving an inventory of 79 cases pending.

Conclusion

The PTO is doing a good job on the front end. Significant progress is being made on first office action pendency. The problems begin, however, once an application reaches a final office action. RCE filings are skyrocketing. Many or most of these are the result of examiners forcing them on applicants. This is very inefficient and increases application cost and pendency significantly.

The PTO must come up with a plan to deal with its crisis at the Board. Applicants deserve the ability to get a final agency decision on a patent application within a reasonable time frame. The PTO is working hard to try to hire more judges and patent attorneys to work on this situation, but Congress added to its workload as well.

To exacerbate these issues, fee diversion appears to be back. Even though the PTO is funded by user fees, it is being required to cut funding and transfer fees to other agencies. This is not permissible and must end. More details are available here and here.

Posted in US Patent & Trademark Office | 2 Comments »

Be Certain to Rebut Examiner’s Statements During Prosecution

April 17, 2013

Yesterday, a divided panel of the Federal Circuit affirmed the district court’s narrow claim construction based on the applicant’s prosecution history disclaimer in Biogen IDEC v. GlaxoSmithKline.

Biogen obtained a patent that covered a method for treating patients with Chronic Lymphocytic Leukemia (CLL) by administering a therapeutically effective amount of anti-CD20 antibody. Anti-CD20 antibodies are antigen proteins that are capable of being used in cancer treatment. At issue in the case was the meaning of the term “anti-CD20 antibody.”

During prosecution of the patent, the examiner rejected the claims for lack of enablement. The claims were not enabled under the broadest reasonable interpretation standard used by the PTO for “any and all anti-CD20 antibodies, no matter the specificity or affinity for the specific epitope on the circulating tumor cells.” The examiner acknowledged that the specification did enable certain antibodies, such as RITUXAN® (rituximab), but was silent as to necessary specificity and affinity for other anti-CD20 antibodies.

The applicant responded that those of skill in the art would know that

even though antibodies directed to the same antigen might have different affinities and functional characteristics, one of skill in the art could readily identify an antibody that binds to CD20 with similar affinity and specificity as does RITUXAN® using techniques that are well known in the art. . . . With that knowledge in hand, the skilled artisan could readily produce anti-CD20 antibodies using similar techniques, and screen such antibodies for those having an affinity and functional activity similar to RITUXAN®.

The examiner then withdrew the enablement rejection and the claims were allowed.

GSK developed an anti-CD20 antibody with distinctly different characteristics from RITUXAN®. Biogen sued GSK for infringement.

The district court construed the term “anti-CD20 antibody” to mean “rituximab and antibodies that bind to the same epitope of the CD20 antigen with similar affinity and specificity as rituximab.” This construction was based on Biogen’s disclaimer during prosecution of the patent to overcome the examiner’s enablement rejection. Biogen stipulated that, under this construction, GSK did not infringe the claims of the patent.

Federal Circuit

On appeal, Biogen argued for the ordinary and customary meaning of the anti-CD20 antibody claim term. The court acknowledged that to overcome this heavy presumption of the ordinary meaning, a “clear and unmistakable disavowal” by the applicant during prosecution is required. The majority ruled that the applicant did make such a disavowal in this case.

According to the court, rather than challenging the examiner’s understanding of the “anti-CD20 antibody” claim term, the applicant merely argued that the claims were enabled for anti-CD20 antibodies that are similar to RITUXAN®. The applicant seemed to acquiesce to the examiner’s assertion that the claims were not enabled for other types of anti-CD20 antibodies.

Although Biogen argued that the applicant was discussing functional and affinity characteristics of anti-CD20 antibodies generally, and suggested that those skilled in the art would apply their understanding of the selection of such antibodies similar to the selection of RITUXAN®, the court instead held that the statement demonstrated a disavowal of claim scope of reasonable clarity and deliberateness.

This case is highly unusual in that prosecution history disclaimers are usually a result of the applicant’s statements during prosecution, not the examiner’s. The court, however, was unconvinced.

This case deals not only with applicants letting stand an examiner’s narrow characterization of a claim term, but also their adoption of that characterization to overcome the examiner’s enablement rejection.

Judge Plager dissented from the majority opinion. He argued that the give-and-take with the examiner is part of a negotiation with the applicant. Such negotiation often results in ambiguous statements as in this case. These less-than-clear statements should not be used against the applicant as they do not enhance the prosecution history’s notice function to the public. Such is the case here. Judge Plager would reverse and use the ordinary meaning of the term.

Lessons

It seems fairly clear that in this case Judge Plager is correct. The record seems less than clear as to why the examiner withdrew the enablement rejection. Was it because the applicant disclaimed certain claim scope that was considered non-enabled? Was it because the examiner was convinced by the applicant’s argument that by demonstrating enablement for certain anti-CD20 antibodies that it was enabled for others as well? This is definitely not a clear and unmistakable disavowal of claim scope.

The lesson, however, is that applicants should rebut all of the examiner’s statements in office actions with which he does not agree. In this case, the applicant may believe that he did just that. He presented an argument that overcame the examiner’s rejection. This is a really tough opinion on this issue.

Earlier in my career, I worked with an attorney in the past who taught me to use language such as the following.

To avoid any unintended consequences to the contrary, the undersigned respectfully does not accept or acquiesce in any statement, argument, or description in the Office Action except as expressly stated herein.

While this language generally seems to be overkill, and seems to be merely boilerplate, it would (hopefully) avoid a situation such as in this case.

Posted in Court Decisions, Federal Circuit, Patent Strategies | Leave a Comment »